The coronavirus (COVID-19) is currently affecting the world in both medically, and economically. Although the Government is now talking about easing social restrictions, the impact of the pandemic might still be felt around Australia for some time. One particular impact might be on commercial contracts that were entered into just prior to the pandemic, or even after.
Parties to those contracts might be considering whether they can discharge their contractual obligations as a result of COVID-19. If they cannot, this is known as frustration and there may be an opportunity to terminate a contract by the benefit of a force majeure clause.
Force majeure clauses are intended to deal with the impact of events which are out of the control of the parties involved in the contract. Common frustrating events might include natural disasters, acts of God, labour shortages, acts of war, and might include the COVID-19 pandemic.
However, to be able to rely on such a clause, performance of the contract must be impossible. It will not be enough to simply suggest it is too difficult to perform the contract, or it is too costly, or inconvenient.
If you are a party to a commercial contract and either cannot perform the contract because of the pandemic, or the other party seeks to terminate the contract because of the pandemic, you should seek legal advice on the issue.
The validity of the clause will depend on how the force majeure clause has been drafted and how the clause can be interpreted.
If you are intending on entering into a commercial contract, you should seek legal advice to consider whether a force majeure clause is valid, or should be included in the contract. The ongoing ramifications of the pandemic are not yet clear, and it will be important to plan for future business disruption and the ability to perform a contact.